Oil Crops Outlook: U.S. Season-Ending Soybean Stocks Shifted Higher

USDA forecast 2017/18 season-ending soybean stocks 25 million bushels higher this month to 555 million. This month’s expected increase was the consequence of a lowered 2017/18 export forecast, which is down 35 million bushels to 2.065 billion. The 2017/18 crush forecast is raised 10 million bushels this month to 1.96 billion based on a brighter outlook for U.S. soybean meal exports.

Domestic Outlook

Slowing Soybean Exports Raise Stocks Outlook

USDA forecast 2017/18 season-ending soybean stocks 25 million bushels higher this month to 555 million. This month’s expected increase is the consequence of a lowered 2017/18 export forecast, which is down 35 million bushels to 2.065 billion.

February export inspections of soybeans declined 50 million bushels from January to 155 million. While this generally tracks a typical seasonal pattern, cumulative shipments through February fell even further behind the 2016/17 pace.

Logistical delays for a top U.S. transportation artery contributed to slower soybean exports in February. Barge shipments to port elevators at the Gulf of Mexico (the point of departure for nearly 60 percent of U.S. soybean exports) have been interrupted by upstream flooding.

Barge traffic was temporarily suspended on lower sections of the Mississippi River and its major tributaries including the Ohio, Illinois, Tennessee, and Arkansas Rivers. Runoff from last month’s heavy rains and rapidly melting snow (a result of February temperature spikes) was responsible.

The rising waters make it more difficult to get tow boats under the loading spouts at river terminals and the bridges that span the waterway. A faster current also forces reductions in the size of barge tows and restricts operations to daylight hours. Even with no further rainfall, it could take weeks for normal barge service to resume.

Some of the barge traffic can be replaced by additional rail shipments to Pacific Northwest ports—to the extent that railcars are available. U.S. export prices have increased, but could become more competitive once these transportation issues are resolved.

It would take the highest ever March-August soybean shipments to realize even this scaled back forecast of annual exports. Yet, export sales may well revive in the second-half of 2017/18, despite record competitor supplies in Brazil.

Current and deferred price bids at the U.S. Gulf are still quite competitive with South American origins, which could eventually stimulate additional sales. Buying interest could heat up by next summer with the possibility of sluggish soybean shipments from Argentina.

Soaring Soybean Meal Prices Bolster Crushing Industry

A brighter outlook for U.S. soybean meal exports is elevating prices and supporting the domestic crush market. Sluggish soybean meal exports from India and dimmer Argentine prospects are making U.S. supplies more attractive to importers. U.S. exports for 2017/18 are forecast up 200,000 short tons this month to 12.4 million.

Since December, a strong rally in soybean meal prices has strengthened domestic crush margins. Central Illinois soybean meal prices surged $40 per short ton in February to a monthly average of $363. That price level is the highest since July 2016, when adverse weather also affected the Argentine soybean crop.

The circumstances for the increase are ongoing, so by early March, daily soybean meal values were approaching $400 per ton. The strong rally led USDA to raise its forecast of the 2017/18 average price this month by $20 to $325-$355 per ton. It isn’t a total windfall for crushers, though, as the cash prices they pay for soybeans have risen, as well.

The 2017/18 crush forecast is raised 10 million bushels this month to 1.96 billion. The January 2018 soybean crush (at 174.5 million bushels) declined from December (176.3 million bushels). However, compared to the year-earlier level, the cumulative September-January gain was up 2.4 percent.

In contrast, soybean oil supplies have been accumulating in the wake of heartier soybean meal demand. The higher crush rate is boosting 2017/18 soybean oil production, but total demand for oil has been less robust than anticipated. Based on a modest 2-percent increase in biodiesel feedstock use for the first quarter of 2017/18, soybean oil use for biodiesel is forecast down this month by 300 million pounds to 7.2 billion.

In 2016/17, use for biodiesel totaled 6.2 billion pounds. Lower prices are seen raising the edible use of soybean oil by 200 million pounds this month to 13.8 billion.

For January, an overall reduction in use contributed to the increase in month-ending soybean oil stocks to 2.23 billion pounds versus 1.95 billion in December. Eventually, season-ending inventories may recede from this level as use subsequently picks up again.

The easing supply outlook for soybean oil has pressured prices and reduced oil’s share of the total value from crushing. In February, central Illinois prices for soybean oil fell by 1 cent per pound to 30.6 cents. USDA lowered its forecast of the 2017/18 average price this month by 1 cent per pound to 30-33 cents.